"The world always makes the assumption that the exposure of an error is identical with the discovery of truth -- that the error and truth are simply opposite. They are nothing of the sort. What the world turns to, when it is cured on one error, is usually simply another error, and maybe one worse than the first one." ~ H.L. Mencken

The Elastic Standard

The needle is approaching “E.” Not to worry; there’s a gas station in the next block. Your car’s owner’s manual gives the gas tank capacity as 20 gallons, but when the pump finally clicks off, you find it’s taken 500 gallons to fill your tank. Well, that’s not surprising. Your car is nearly ten years old, and additionally, today’s gas is different from the gas of ten years ago. Things change.

You stop at the grocery store on your way home to pick up a gallon of milk. After a prolonged search through the multiple varieties of liquids called “milk,” you finally find a gallon of just plain milk: not skim, not 2%, not low-fat, not soy, but just milk. The gallon container is about the size of the small half-pint containers that once contained a now nearly extinct dairy fluid called “cream.”

At home your wife is preparing your dinner: roast beef, approximately ten pounds. It will feed both of you, albeit sparingly. No leftovers. Oh well, nothing remains the same. You must adapt to changing times.

If the episodes described above actually took place, there would be no “oh well.” Just the opposite. Terms like “gallon” and “pound” don’t vary in meaning from time to time; chaos would ensue if they did. On the contrary, there are men and women who are paid to periodically check scales and gasoline pumps to be sure that they deliver what they are supposed to deliver. What’s the point of a standard if it’s not standardized and maintained at the standard level?

With a notable exception, at least as significant as the fictional ones above.

Go to the U.S. Mint’s website. If you’ve never visited it before, you might find it interesting and educational. The Mint coins gold, silver and platinum in dollar denominations, as you might expect. What would catch your attention, however, is that a newly-minted dollar coin of silver will cost approximately $50. A circulated dollar of silver from a coin dealer might cost half that.

Wait a minute! If a pound is a pound, and a gallon a gallon, isn’t a dollar a dollar? If it is, why does a $1 coin cost $50? If it isn’t, then what in the world IS a dollar? A common definition is that it is a monetary unit in the United States. And a unit is defined, among other things, as a standardized amount used in measuring, as in a pound of butter, or a bushel of wheat--but, amazingly, not a “dollar.”

If you think about it--sadly, few do--you might find yourself asking, “Why would anyone sell a dollar?” Who would pay more for a dollar than a dollar? Who would sell a dollar for less than a dollar? The only answer that makes sense is that there are dollars, and there are dollars. Some are more valuable than others.

The importance of this is widely and completely overlooked. Consider taxation, for example. You are taxed on the value of your home and your automobiles. How is their value measured? In dollars, of course. Which ones? Don’t ask the assessor; he won’t answer. (I’ve tried it.)

And what about your income? Assume an income of 100,000 “dollars” received in the form of checks, which are neither legal tender, nor redeemable in anything but another form of IOU, such as Federal Reserve notes. The silver dollar coins obtainable from a coin shop conform to the last legal definition of dollar. Your $100,000 income, in terms of such coins, would be about $4,000. Can you use such genuine dollars to indicate to the government your income?

About 40 years ago I asked the IRS for the definition of “dollar.” Their reply was that the term was not defined in the Internal Revenue Code. That’s rather surprising, since that code runs to millions of words, none more important, it would seem, than “dollar.” (For that matter, the Code doesn’t define “income,” either.) But you must declare, under penalty of perjury, the “true, correct and complete” value of your “income” in terms of “dollars.” So you would think that “dollar” would be defined, as well as income.

In the absence of a definition in the Code, could you use the last available definition, from the Coinage Act of 1792? Try it with the taxing authorities, and be prepared for astronomical legal fees when you’re charged with some tax “crime.” The tax on an income of $4,000 would be smaller, and at a lower rate, than the tax on an “income” of 100,000 “dollars,” so measuring income in terms of actual, instead of fictional, dollars would be a boon for the taxpayer, if not for the government. And government does exist for the benefit of the citizen, doesn’t it? Oh, sure!

So why, you ask, does such a ridiculous situation exist? Because if the only dollar was the dollar of silver, weighing 412.5 grains of standard silver, the banks could not create “dollars” out of thin air, as they do now, and get away with it for long, as depositors would demand the redemption of their holdings in real money. The fictional “dollar” makes modern big government, with its wars and welfare, and foreign aid programs, possible.

Comments

But "we" all know that. Right? Yet how often I hear or read -- even on "libertarian" sites, with almost tears in their eyes, individuals lamenting about how far "we" have strayed from "our" constitution. And, of course, that agreement, or however you describe it, referred to coinage produced with "precious metals" (there was actually no other kind at the time, I think).

It was a matter of time until someone chanced to submit "script", or "promises" that could be exchanged for precious metal coinage (specie) -- with the idea that a relatively small percentage of depositors would want to exchange "dollars" for gold or silver at any given time. And a matter of additional time before a "federal reserve act" could bedazzle a faithful serfdom. And an additional matter of time until the Roosevelts and the Nixons would discover that the hoi polloi would docilely submit to mere sheets of exotic and difficult (for amateur printers) to reproduce pieces of paper with images of dead Caesars.

No promise of anything other than debt. But "we-the-people" (not including me -- at least after I began to embrace anarchy) accepted that mentality as with the idea of an omni-god, with a home in a district of collectivism. It would be enforced to be circulated and accepted for payment ("fiat").

Great points, Paul. I work in the coin / precious metals industry, so a few notes:

Those $50 silver dollars are collectibles; the "bullion" versions of the U.S. Mint's American Silver Eagle coins sell for a small premium above the melt value of its silver content (1 troy oz), so a little over $20. But your point stands.

The legal tender value of a Silver Eagle is a farce. Sure, they're redeemable for 1 "dollar," but who would do so when you can sell the coin for at least the spot price of silver? The mint confers legal tender status onto the coins just so it can say they are "silver coins." (If they weren't legal tender, they'd merely be "medals" instead.) You could fairly call them specie, but they aren't intended to circulate—nor should they, upon rational consideration, at least not at a rate of one fictional USD.

We should certainly ask ourselves why an ounce of silver is $20; throughout the history of this country, a silver dollar coin was standardized at 0.7734 troy ounce of silver content. That standard didn't change for well over a century. The government changed the composition of U.S. coins after 1964 so that dimes, quarters, and half dollars no longer contained silver. At the time, it was becoming profitable to hoard coins for their silver value rather than using them as money. Like Sam mentions, the value of the dollar is only due to fiat (government decree)—you must accept our worthless money under penalty of law! Nothing tangible backs this absurd monetary system.

It's less useful to think of the price of silver as "going up" than it is to say (as you have here) that the "dollar" is a futile measuring stick. It's lost over 95% of its purchasing power since the Federal Reserve opened its doors in 1913. Federal Reserve notes are simply debt obligations masquerading as capital. Meanwhile, the relative value of the precious metals have been remarkably steady over that time.